Brookings: Drive Energy Innovation to Grow the Clean Economy

Over the past few years, “green jobs” and the “clean economy” have become the growth mantra for a wide variety of energy, climate, and economic policy advocates. Much of this excitement has been productive and justified, but some of it has been misinformed. Few reports have shed more light on this debate than the new study by the Brookings Institution Metropolitan Policy Program, “Sizing the Clean Economy: A National and Regional Green Jobs Assessment.”

The report offers a plethora of data and analysis, and several commentators have already weighed in with various interpretations (see Bryan Walsh at TIME). But one of the key conclusions worth highlighting is that the driving force behind the U.S. “clean economy” over the last decade has been emerging energy technologies –- not in sectors related to buildings and home weatherization, energy-saving consumer products, or efficient appliances (as some advocates predicted). In other words, emerging energy technologies appear to have the greatest job and export growth potential, and this carries important implications for U.S. policy priorities — a conclusion recently echoed in Google’s energy innovation report.

Brookings defines the “clean economy” as a very broad range of goods and services that provide environmental benefit, including everything from electric vehicle technologies to organic foods and waste management (see list below). As it explains, the report is “the first study of the U.S. clean economy to provide timely information that is both comprehensive enough in its scope and detailed enough in its categorization to inform national, state, and regional leaders on the recent employment dynamics of the U.S. low-carbon and environmental goods and services super-sector…”

According to the data, the highest job growth and export intensity in the overall clean economy between 2003-2010 was primarily in emerging energy technologies. Out of the 39 measured sectors, the top eight with the greatest relative job growth were all energy-related: wave/ocean power, solar thermal, wind, carbon storage and management, solar PV, fuel cells, biofuels, and smart grid. In terms of export intensity, seven of the top eight sectors were energy technologies: biofuels/biomass, electric vehicle technology, battery technology, wind, solar PV, and fuel cells. The most export-intensive “category” of sectors was renewable energy technologies, at $64,884 in exports per job, compared to only $20,129 for the aggregate clean economy.

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The report highlights this growth trend in its second conclusion:

“The clean economy grew more slowly in aggregate than the national economy between 2003 and 2010, but newer “cleantech” segments produced explosive job gains… 78 percent of all job gains between 2003 and 2010 came from establishments born in 2003 or later… Along these lines, four of the five fastest-growing segments during this seven-year period were in renewable energy… Young, technology-heavy segments were also adding jobs at elevated rates each year over the period.” The concluding section notes: “Already the aggregate clean economy employs more people than the fossil fuels and biotech industries. More importantly, a dozen or so “hot” segments – mostly dynamic renewable energy categories like wind energy, solar photovoltaic, and smart grid – doubled and tripled in size in the last decade, answering the hype that has surrounded them despite extremely difficult recent market and finance conditions.”

The concluding section similarly notes (emphasis added):

“Already the aggregate clean economy employs more people than the fossil fuels and biotech industries. More importantly, a dozen or so “hot” segments – mostly dynamic renewable energy categories like wind energy, solar photovoltaic, and smart grid – doubled and tripled in size in the last decade, answering the hype that has surrounded them despite extremely difficult recent market and finance conditions.”

This rapid growth in clean-tech contrasts with building-related and other sectors (emphasis added):

The implication is this: if the U.S. wants to prioritize job and export growth in the “clean economy,” it should put primary emphasis on new, technology-intensive, energy-related sectors. U.S. federal and state policies to advance the aggregate clean economy should focus especially on energy innovation – on the research, development, manufacture, demonstration, and commercialization of new energy technologies, as well as supporting infrastructure and advanced human capital. Indeed, on the latter item, the report also finds that “the clean economy employs a higher percentage of scientists, architects, and engineers (10.1 percent) than the national economy (5.4 percent),” which points to need for a national energy science and engineering education program, such as RE-ENERGYSE.

The report offers three overarching policy recommendations to advance the clean economy – categorized as market creation (i.e. support for deployment), finance, and innovation – which are largely consistent with this assessment. In terms of innovation policy, the report drives home the existing consensus on the need to increase federal energy RD&D from its current level of only $3-5 billion up to $15-25 billion annually. In the near-term, it suggests incremental growth in DOE’s new energy R&D program budgets – the Energy Frontier Research Centers, ARPA-E, and the Energy Innovation Hubs – “including a tripling of the ARPA-E budget, the creation of new hubs, the creation of a water sciences innovation center, and the establishment of a regional clean economy consortium initiative.” It also recommends that states expand their RD&D and cluster development programs, pointing to the New York State Energy R&D Agency (NYSERDA) and Ohio’s Nortech as models.

In terms of finance, the report emphasizes the needs to reform existing subsidies to prioritize innovative technologies, similar to the recommendations in “Post-Partisan Power” (a 2010 report by American Enterprise Institute, Brookings, and Breakthrough Institute). Its primary recommendation is the creation of an emerging technology deployment finance entity to address the “commercialization Valley of Death,” between the demonstration/scale-up and commercial roll-out stage of new technologies. It goes on to recommend “a push to rationalize and reform the myriad tax provisions and incentives that currently encourage capital investments in clean energy projects… Such reform might well pair selective extensions of key production, investment, and manufacturing tax credits as well as the Treasury grant cash-back program with staged, technology-specific phase-outs, which would at once provide new industries support, predictability, and a nudge toward innovation and cost-reduction.” It also suggests creating more state-based finance programs, such as revolving loan funds like California’s Infrastructure & Economic Development Bank.

Beyond these recommendations, another area for further exploration is the role of advanced manufacturing and its policy implications. The data shows that the clean economy is particularly manufacturing-intensive — 26% of clean economy jobs are in manufacturing establishments compared to just 9% in the broader economy — but the report recommendations don’t contain much on manufacturing policy. Growing evidence suggests that manufacturing is a vital stage in the innovation process, and R&D dollars will follow manufacturing capacity overseas if the U.S. doesn’t compete for these facilities. (For example, see ITIF’s recent report, “The Case for a National Manufacturing Strategy.”)

Of course, the Brookings report contains much more information and certainly merits a full review. But this key finding on the importance of energy innovation for driving the overall clean economy warrants particular attention from energy, climate, and growth advocates. This conclusion aligns well with the policy priorities of Americans for Energy Leadership and our allies, and it plays well to the United States’ comparative advantage in innovation. With the right policy support for advanced and emerging energy technologies, the U.S. can continue to unleash the potential of the clean economy — and regain our global leadership.

Teryn Norris is president and founder of Americans for Energy Leadership. He has developed and advanced policy at the federal and state level, appeared on national television and radio, and published in New York Times Dot Earth, Harvard Law & Policy Review, National Journal, Forbes, San Francisco Chronicle, Baltimore Sun, Issues in Science & Technology, Yale Environment 360, SAIS Review, ...

Excellent article. However, the problem with it's conclusion is that we are currently in need of tremendous government spending reductions as a result of bailing out the millionaires and billionaires who were apparently too big to fail. A counter-intuitive part of this, for most people, is that there are enormous piles of cash sitting around in private and corporate coffers, because everyone has lost faith in the future. The money is afraid to come out of hiding for fear of some new unexpected way that it can evaporate based on government actions, the ascendance of mega-speculators and the profound imbalances now plaguing the world economic system.

The Federal Reserve is quietly at work to force all this money out of hiding. It is pursuing policies that radically debase the currency and is moving to do away with government guarantees on bank accounts. This means that next time we face a major banking insolvency crisis, the account holders may get a "haircut" as they so prosaically put it.

So we need a different policy to get that money into productive use. I think a tax on parked money and a tax credit on innovation based R&D would do the trick. We need to move away from speculation and into a productive economy. Productive does not mean supposed "innovative" derivatives of financial instruments that have no actual capital backing them up. It means actually making products with real functional value beyond wealth accumulation for the greedy. Real stuff, like batteries, and electric cars and renewable energy products and appliances.